Pay off my mortgage or invest in another property?

Paying off your mortgage early is always wise, but there is also the option of taking on more debt to buy an investment property.

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Paying off your mortgage fast makes sense, but you also have the option to invest. While paying off your debt reduces the amount you pay in interest, you could potentially generate more wealth by taking on more debt and buying an investment property. This is obviously a very big and risky decision, but if done correctly it could set you up with an investment that improves your financial position.

Pay off your home loan faster and get out of debt

Reducing your mortgage debt is always a good idea. If you had a $500,000 mortgage over 30 years with a 4% interest rate, you'd end up paying $359,347 in interest on top of that.

If you were 10 years into that mortgage and you started paying an extra $200 a month in repayments you'd end the home loan two years and three months faster. Plus you'd pay $22,000 less in interest.

Try our extra repayments calculator for yourself

The benefits to paying off your mortgage faster are obvious:

  • You can save more of your hard-earned cash.
  • Being debt-free means less worry about repayments and more financial freedom.
  • Your property is a form of wealth: the less debt you hold, the more equity you'll have.

Get some quick tips for paying off your mortgage faster.

Buy an investment property

But not all debt is bad debt. If you're borrowing more money to invest in an income-producing and wealth-creating asset, such as an investment property, that's a pretty productive debt.

Buying an investment property rather than paying off your home loan allows you to produce rental income, enjoy tax benefits from negative gearing and eventually see a capital gain from the sale of the property. In this light, taking on extra debt doesn't seem unreasonable.

And while paying off your mortgage faster makes financial sense, the greater benefits come from doing this early in the loan, not later. This is because of compound interest. Early repayments at the start of a 30-year loan are far more effective in cutting down interest than extra repayments made 20 years into the loan.

Property investor tax benefits

When you're paying off the mortgage on your home you can't deduct your interest payments from your tax. But you can with an investment property. In other words, the interest you pay on your investment mortgage can help reduce your tax bill.

For this reason, many investors focus on shrinking the mortgage on their home first: that debt has no tax benefits.

Get more tax tips for property investors.

But can you handle an investment property?

So, as we've seen above, there's no right or wrong answer. Getting out of debt is always a good idea, and buying an investment property later in your mortgage is a strong option too.

It all depends on what you can handle. "The decision to invest in another property when you already have a home loan is a pretty big decision because you're taking on more debt," says Financial Spectrum managing director Brenton Tong. "Probably the most important consideration of your financial position at the time is your cash flow.

"You can have an enormous amount of equity in your property and you could almost have your property paid off, but if you don't have the available cash flow to fund additional debt then you're going to be putting yourself in harm's way. If, on the other hand, your debt is quite high and your equity is quite small yet you still have an abundance of cash flow, then quite possibly you might be in a position where you can get into property investment much earlier than you think you can."

The bottom line: don't buy an investment property if you don't have the cash flow to cover the repayments and property maintenance. Obviously having a rent-paying tenant reduces the money required, but you need to anticipate higher costs, property damage and periods without a tenant.

The risks of investing in property

Property investment is never a certainty (no investment is). Here are some risks to be aware of:

  • Being a landlord is work. You have legal responsibilities to maintain your investment property so your tenants can live in it. This can be costly.
  • A property can lose value. There's no guarantee that the property you buy will grow in value year over year. You need to do your research and buy a good property in a good location.
  • You might not find a tenant. Untenanted periods mean months without rental income and that can make your investment very expensive.

Other investment options

Mortgage repayments and property investments certainly aren't your only options. Here are some more possibilities for home owners with extra cash on hand:

  • Put more money into an offset account. If you mortgage has an offset account you can put extra repayments here. It mimics the effect of extra repayments but you can pull the money back out to spend on an investment or anything else. It gives you greater flexibility.
  • Add to your super. Putting more money into your super fund can set you up for a comfortable retirement.
  • Make smaller investments in shares or ETFs. Investing in shares or products like exchange-traded funds (ETFs) lets you put your money to work without the massive commitment of purchasing an investment property.

Compare investment home loans

$
years
Name Product Interest Rate (p.a.) Comp. Rate (p.a.) Fees Monthly Payment

Nano Variable Home Loans P&IInvestment≥ 25% Deposit

Nano Variable Home Loans
2.29%
2.29%
  • App: $0
  • Ongoing: $0 p.a.
$577.55
Refinancers only. Investors can refinance this no-fee variable rate loan. You will need a 25% deposit. Fast online approval.

Athena Variable Home Loan P&IInvestment≥ 40% Deposit

Athena Variable Home  Loan
2.39%
2.39%
  • App: $0
  • Ongoing: $0 p.a.
$585.25
Investors with large 40% deposits or equity can get this low variable rate. A competitive option for investors looking to refinance.

UBank UHomeLoan Fixed P&IInvestment 1Y Fixed≥ 20% Deposit

UBank UHomeLoan Fixed
2.14%
2.71%
  • App: $0
  • Ongoing: $0 p.a.
$566.11
Investors can enjoy flexible repayments and an easy application process with this pioneering online lender.

St.George Fixed Rate Advantage Package P&IInvestment 2Y Fixed≥ 20% Deposit

St.George Fixed Rate Advantage Package
2.24%
3.89%
  • App: $0
  • Ongoing: $395 p.a.
$573.72
$3,000 refinance cashback.
Investors can lock in a competitive rate for two years with this package loan. You will need at least a 20% deposit. Refinancers borrowing $250,000 or more can get a $3,000 cashback (Other terms, conditions and exclusions apply). Refinancers Only.

Westpac Fixed Option Home Loan Premier Advantage Package P&IInvestment 2Y Fixed≥ 5% Deposit

Westpac Fixed Option Home Loan Premier Advantage Package
2.29%
3.97%
  • App: $0
  • Ongoing: $395 p.a.
$577.55
$3,000 refinance cashback
A competitive fixed rate loan for investors that allows you to make up to $30,000 in extra repayments. Principal and interest loans only. $3,000 cashback for eligible refinancers. Apply by 31 August 2021. Terms and conditions apply.

Bank of Melbourne Advantage Package Fixed Home Loan P&IInvestment 2Y Fixed≥ 20% Deposit

Bank of Melbourne Advantage Package Fixed Home Loan
2.24%
3.91%
  • App: $0
  • Ongoing: $395 p.a.
$573.72
$3,000 refinance cashback.
Lock in a low rate for two years with this competitive investment package loan. Refinancers borrowing $250,000 or more can get a $3,000 cashback (Other terms, conditions and exclusions apply). Refinancers Only.

loans.com.au Smart Booster Discount Investor Variable Home Loan P&IInvestment≥ 20% Deposit

loans.com.au Smart Booster Discount Investor Variable Home Loan
1.99%
2.71%
  • App: $0
  • Ongoing: $0 p.a.
$554.81
If you have an owner occupier loan with loans.com.au you can also get this very low rate variable mortgage for your investment property. Principal and interest repayments. Add an offset account for an additional 0.10% on your interest rate. Get your loan processed fast and settle within 30 days.

Well Home Loans Balanced Fixed Home Loan P&IInvestment 3Y Fixed≥ 10% Deposit

Well Home Loans Balanced Fixed Home Loan
2.34%
2.36%
  • App: $250
  • Ongoing: $0 p.a.
$581.39
A competitive 3 year investor rate with principal and interest repayments. Optional offset account with a $10 monthly fee. Not available for construction purposes.

homeloans.com.au Low Rate Home Loan with Offset IOInvestment≥ 40% Deposit

homeloans.com.au Low Rate Home Loan with Offset
2.59%
2.42%
  • App: $0
  • Ongoing: $0 p.a.
$600.83
This competitive variable rate loan is for investors who want interest-only repayments. You will need a 40% deposit.

HSBC Home Value Loan P&IInvestment≥ 30% Deposit

HSBC Home Value Loan
2.44%
2.45%
  • App: $0
  • Ongoing: $0 p.a.
$589.12
$3,288 refinance cashback offer
This variable rate loan is available for property investors with 30% deposits. This loan has very few fees. Eligible refinancers borrowing $250,000 or more can get a $3,288 cashback. Terms and conditions apply.

UBank UHomeLoan Variable Rate P&IInvestment≥ 20% Deposit

UBank UHomeLoan Variable Rate
2.74%
2.74%
  • App: $0
  • Ongoing: $0 p.a.
$612.67
Get a discounted, low-fee investor loan from a convenient online lender. 20% deposit required.

Suncorp Home Package Plus Fixed P&IInvestment 3Y Fixed≥ 20% Deposit

Suncorp Home Package Plus Fixed
2.28%
3.15%
  • App: $0
  • Ongoing: $0 p.a.
$576.78
$3,000 refinance cash bonus
Borrowers with 20% deposits can lock in a low fixed rate loan for three years. Eligible new borrowers can get the annual package fee reimbursed for the life of the loan. $3,000 refinance cash bonus for eligible borrowers. Other terms, conditions and eligibility criteria apply.

Nano Variable Home Loans IOInvestment≥ 25% Deposit

Nano Variable Home Loans
2.59%
2.40%
  • App: $0
  • Ongoing: $0 p.a.
$600.83
Refinancers only. This variable investment loan has interest-only repayments and is for refinancers only. Fast online approval. Requires a 25% deposit.

homeloans.com.au Low Rate Home Loan with Offset P&IInvestment≥ 20% Deposit

homeloans.com.au Low Rate Home Loan with Offset
2.39%
2.41%
  • App: $0
  • Ongoing: $0 p.a.
$585.25
This investment loan keeps fees low, has a sharp interest rate and comes with a 100% offset account. This loan is not available for construction.

Athena Variable Home Loan P&IInvestment≥ 20% Deposit

Athena Variable Home  Loan
2.59%
2.48%
  • App: $0
  • Ongoing: $0 p.a.
$600.83
A competitive investor variable rate that falls as you build equity.

UBank UHomeLoan Fixed IOInvestment 3Y Fixed≥ 20% Deposit

UBank UHomeLoan Fixed
2.24%
2.64%
  • App: $0
  • Ongoing: $0 p.a.
$573.72
Pay no ongoing fees on this investment loan fixed for 3 years.

Well Home Loans Balanced Variable P&IInvestment≥ 20% Deposit

Well Home Loans Balanced Variable
2.32%
2.35%
  • App: $250
  • Ongoing: $0 p.a.
$579.86
If you're an investor with a 20% deposit saved you can get this low rate mortgage. Not available for construction.

UBank UHomeLoan Fixed P&IInvestment 5Y Fixed≥ 20% Deposit

UBank UHomeLoan Fixed
2.49%
2.67%
  • App: $0
  • Ongoing: $0 p.a.
$593.01
Lock in a 5 year fixed rate on your investment loan and pay no ongoing fees.

Athena Variable Home Loan P&IInvestment≥ 30% Deposit

Athena Variable Home  Loan
2.49%
2.43%
  • App: $0
  • Ongoing: $0 p.a.
$593.01
Athena's refinance offer for investors and owner occupiers.

UBank UHomeLoan Variable Rate IOInvestment≥ 20% Deposit

UBank UHomeLoan Variable Rate
2.60%
2.65%
  • App: $0
  • Ongoing: $0 p.a.
$601.61
Pay interest only repayments with this special offer for investors.

IMB Fixed Rate Home Loan P&IInvestment 3Y Fixed≥ 10% Deposit

IMB Fixed Rate Home Loan
2.35%
3.33%
  • App: $449
  • Ongoing: $6 per month
$582.16
NSW and ACT customers only. A 3 years fixed rate investor which allows extra repayments to be made.

Well Home Loans Balanced Variable P&IInvestment≥ 10% Deposit

Well Home Loans Balanced Variable
2.87%
2.90%
  • App: $250
  • Ongoing: $0 p.a.
$623.03
Competitive variable investor mortgage to fund your property portfolio. You can add a 100% offset account for just $10 a month.Not available for construction purposes.

UBank UHomeLoan Fixed IOInvestment 1Y Fixed≥ 20% Deposit

UBank UHomeLoan Fixed
2.29%
2.72%
  • App: $0
  • Ongoing: $0 p.a.
$577.55
Investors can enjoy flexible repayments and an easy application process with this pioneering online lender.

Athena Variable Home Loan IOInvestment≥ 30% Deposit

Athena Variable Home  Loan
2.69%
2.52%
  • App: $0
  • Ongoing: $0 p.a.
$608.71
Investors with 30% deposits can get this fee-free variable rate loan. This loan has interest-only repayments.

homeloans.com.au Low Rate Home Loan with Offset IOInvestment≥ 20% Deposit

homeloans.com.au Low Rate Home Loan with Offset
2.69%
2.52%
  • App: $0
  • Ongoing: $0 p.a.
$608.71
A competitive rate with no application or ongoing fee. This loan is not available for construction.
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8 Responses

    Default Gravatar
    colleenFebruary 24, 2015

    I am 61 and my husband 58. I no longer work but my husband still does. we have one property valued at around 380,000
    we have 300,000 in bank and have kept a home loan of 100,000
    this is offset by money in the bank and the rest of the money is earning interest at 3.6%.

    My question is do i pay of the mortgage, we will still have 200,000 in case we need it.
    my husband earns 95000 gross per year. and has superannuation. my superannuation is part of that 200,000. what is the equation for it to work for an investment property?. we would be hoping to resell the property in 5 years. how much rent would you need to be getting if you paid 260,000 for a property.

      Avatarfinder Customer Care
      ShirleyFebruary 24, 2015Staff

      Hi Colleen,

      Thanks for your question.

      Please note that finder.com.au is an online comparison service and is not in a position to be giving financial or investment advice.

      Regretfully, this question is beyond the scope of this forum. It is recommended that advice be sought from a financial planner.

      Cheers,
      Shirley

    Default Gravatar
    RAELENEJanuary 8, 2015

    My husband and I have recently bought our second investment through a brokerage agency.At the time my husband’s income was treble to what it is now.We also own another investment property which is more than 40 years old, we pay tax on the rental income from this property as is more than the expenses.We are also paying off a mortgage.Would we be better off selling the old property and pay off our mortgage and keep the new investment or not

      Avatarfinder Customer Care
      MarcJanuary 8, 2015Staff

      Hi Raelene,

      Thanks for the question.

      Contact a trusted financial planner to get an answer to this question which will take into account all of your personal circumstances, including tax and more.

      Sorry, I couldn’t be of more help,
      Marc.

    Default Gravatar
    JDJune 7, 2014

    Hello, we currently own our home in FL, with only $25K owing on an equity line of credit. We also owe $12,500 on a bank credit card. Our home is valued at approximately $275K. We live in Australia & pay $1100/month rent. Would it make sense to purchase a home or unit in Australia instead of paying rent each month? We rent our home out in FL about 6 months/year which covers most of our monthly expenses. Thank you

      Avatarfinder Customer Care
      ShirleyJune 10, 2014Staff

      Hi JD,

      Thanks for your question.

      Please speak to your trusted financial planner to help you with this.

      Cheers,
      Shirley

    Default Gravatar
    TeenaOctober 20, 2013

    Currently have two properties, however have lost my job, have rental coming from one property of 1700 and another coming in at 1500 a month, currently paying off both home and investment property, ANZ won’t structure or refinance differently for me, also have a line of credit am up to 50 now, limit is 80, am running out of ideas to save both homes, is there anything I can do apart from selling one, now before it gets worse, or is there a way to keep both going, am on temporary work as of Monday, but need some help fast,,!

      Avatarfinder Customer Care
      ShirleyOctober 21, 2013Staff

      Hi Teena,

      Thanks for your comment.

      Please see more about mortgage options, otherwise, it may be worthwhile to seek financial counselling.

      Hope this helps,
      Shirley

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